OCEANIC BANK, BANK PHB AND STERLING BANK GET CBN LIFELINE

L-R, Cecilia Ibru, Oceanic; Francis Atuche, BankPHB; Yemi Adeola, Sterling

L-R: Cecilia Ibru, Oceanic; Francis Atuche, BankPHB; Yemi Adeola, Sterling

Nigeria’s version of the global credit crunch might have crystalised into a reality that may not be easily wished away. Reports from sources inside the Central Bank of Nigeria asserted that three banks in Nigeria have been given lifelines to shore up their liquidity standing. These banks according to the source are; Oceanic Bank Plc, Bank PHB and Sterling Bank. With the exception of Sterling Bank that secured a N90billion lifeline, the other two got N100billion funding in what banking industry analysts said is akin to a financial bailout for the banks.

This is coming on the heels of a meeting of chief executives of banks held on Tuesday, 15 October 2008. The high point of that meeting was the decision by the banks’ chief executives to formally request the Federal Government to intervene in the nation’s financial sector to forestall the effect of the ongoing global financial crisis on the system.

The committee of banks chief executives also agreed at the meeting to request the Federal Government to intervene in the nation’s financial market through a package of measures similar to those introduced in developed countries and that the Central Bank (CBN) should continue to support the interbank money market.

Reports indicated that the bankers would have preferred the United States of America and Europe’s option where government directly intervened to inject funds into selected crisis ridden banks and, in some cases, nationalizing the financial institutions that were strategic to the main-stream banking public but whose liquidity profile had become moribund.

Sources inside the Central Bank of Nigeria informed that the CBN Governor rather opted for the fiscal management approach. The CBN, had, before the meeting of the banks chiefs, granted the banking industry a concession through a circular directive of October 2, 2008 to restructure some of their capital market exposures to December 31, 2009. Interpreted, this concession allows banks not to make provision for non performing loans and other facilities that had gone into the nation’s capital market that had taken a dive for the deeps since March, 2008.

“Apparently, the concession was not enough to stave off the simmering threat of illiquidity banks were experiencing.” The CBN source said. “In response to the appeal of the banks chiefs, the CBN offered the option of an expanded discount window operation. The key elements of the expanded discount window operation provided the opportunity for banks that need to assuage their liquidity problems to use short term financial instruments, like overnight standing facility, treasury bills, federal government bonds and non-federal government securities as collateral to secure long term funds from the CBN. You know the CBN conducts liquidity mop up of the money market by selling treasury bills and also sell bonds to financial institutions, normally, treasury bills are due in 30 days while bond are due in period ranging from 90 days to 180 days. Now, to help the liquidity problems in the banking sector, the CBN, with the expanded discount window, allows the banks to present these short term instruments which the CBN will use as collateral to provide funds for them for repayment period of 365 days.” The source explained.

This option does not seem to have been effective, the Nigeria Inter Bank Official Rate, the rate at which banks lend themselves money, have continued to increase, spiking to as high as 21 percent last week. This may not be unconnected to the fact that just a few banks are in the position to lend money to needy banks. Fortune&Class Weekly reported last week that many banks chief executives continued to troop to First Bank Plc, to negotiate and secure funding to keep their operations going.

Sterling Bank’s share reconstruction dust yet to settle

The dust raised as a result of the recent share reconstruction done by Sterling Bank Plc is yet to settle.

 

This is coming on the heels of investors’ reactions that trailed the banks letter to Proshare NI defending the action.

 

As published on Proshare’s website on October 30 2008, Sterling Bank explained in summary the whole process of the share reconstruction;

 

Here are the reactions of investors, some of whom are shareholders of Sterling Bank, in respect of the share reconstruction.

 

Morris Hill in his reaction expressed doubt on the rational behind the Sterling Bank share reconstruction and has called on regulatory authorities to look into the activities of the bank. While Bello Ahmad Abdulmalik is of the opinion that where such share reconstructions occur, the Nation’s Capital Market is not expected to grow. “How would you expect foreign investors” Abdulmalik said. He further affirmed that there are no regulators in our Capital Market.

 

Ade Adeoye, a shareholder of the bank in his reaction wished to know those investors that benefited from the additional shares issued.  “How about those who bought the shares after the merger and a day before the closure of register for the reconstruction?” he queried. Adeoye suggested that perhaps, the Directors of the bank sold their shares during the period of the reconstruction.

 

“This is the more reason information should be made available to the investing public on a timely basis” Adeoye said.

 

He further affirmed of the need for the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) to clarify the Sterling Bank share reconstruction saga.

 

“Anyway, it is a known fact that the Nigerian market is a BUYERS BEWARE Market. How else will such things happen?” he wondered.

 

As earlier reported Sterling Bank had a recent post merger share reconstruction that resulted in the allotment and issuance of additional 13,317,026,285 ordinary shares of 50kobo each ranking pari-passu with existing shares and bringing the Bank’s total issued shares to 23,869,873,936 ordinary shares and thereafter reduced its outstanding shares through reconstruction.

 

This investors of the bank were not happy with this, but Sterling Bank claimed that the Bank’s shareholders at its 45th Annual General Meeting (AGM) approved the resolution for the reconstruction of the Bank’s shares which was eventually carried out on the ratio of 10 new shares for every 19 existing shares held.

Most investors of the bank became suspicious that despite the shares reconstruction, the impact did not reflect in the price of the Sterling Bank’s stock which, rather than move upward, as expected the stock price hit the dirt.